Research Highlights

This paper focuses on the cases of Malaysia and Thailand, and investigates the possibility of upgrading them from the middle income trap (MIT) and the possible roles of the 4IR on this process. The 4IR can be a blessing (window of opportunity) for countries that are facing labor shortages, such as Malaysia and Thailand. The 4IR may involve FDI firms that introduce factory automation (smart factory) or other labor-saving technologies to facilitate upgrade into higher segments with local spillovers. By contrast, increased problems are expected for other countries, such as Indonesia and the Philippines, which are among in the mid-range level of wages and mid-level of educated or skilled population. Firms in these economies mostly execute labor-intensive production and are likely substituted by additional factory automations or multinational corporations that move to neighboring countries for low wages. The case studies of the electronic cluster in Malaysia and the automobile cluster in Thailand suggests a positive possibility of upgrading into high-end segments and thus or of escaping the MIT. A key factor for this positive scenario is that local institutions facilitated the training and upskilling of their local force with an early start or long history that goes back to the 1960s or 1970s.